NEW YORK (AP) — Gap offered a downbeat annual profit outlook late Thursday after reporting a 43 percent drop in net income for the second quarter, weighed down by moves to close stores.
The San Francisco, California-based retailer, which operates stores under its namesake brand, Banana Republic and Old Navy, is facing the same problems as other fashion retailers as shoppers buy less clothing in general and shop more at off-price chains when they do. But it's also struggling with its own problems, including sluggish sales.
Gap has been in a cycle of discounting its goods to get shoppers to buy. CEO Art Peck, who took over the helm in 2015, had promised investors that business would turnaround this past spring but that failed to materialize. Peck said in a statement that during the quarter the company took "critical steps" on its restructuring plans and on building a more efficient brand with more growth potential.
"While I remain unsatisfied with the pace of improvement across the business, I am encouraged by the underlying signs of progress," he said, citing healthier merchandise margins.
Gap said Thursday that it now expects earnings per share to be in the range of $1.87 to $1.92 for the year. Analysts had expected $1.95 per share for the year. Gap's stock slipped 8 cents to $25.80 in after-market trading Thursday. During regular trading, shares had edged up 1.6 percent, or 42 cents, to $25.88.
The company said net income came to $125 million, or 31 cents per share, in the quarter ended July 30. That compares with $219 million, or 52 cents per share, a year earlier. Adjusted results were 60 cents per share, a penny above the estimate by FactSet. Revenue slipped 1.2 percent to $3.85 billion.
Gap announced earlier this month that for the second quarter, it saw a 2 percent drop in sales at stores open at least a year. By division, Gap stores suffered a 3 percent decline in revenue, Banana Republic had a 9 percent drop, and lower-priced Old Navy was flat.
Old Navy had been the company's engine under Stefan Larsson, who turned the business around during his three-year tenure. He left in 2015 to become CEO of Ralph Lauren Corp. and business stalled. In April, Old Navy named Sonia Syngal as global president of the division. She had been an executive vice president in charge of the company's supply chain.
Gap announced in May it was shuttering 75 Old Navy and Banana Republic stores outside North America as it looks to focus on regions where it sees it has the greatest potential for success. The move affects just a fraction of the more than 3,700 stores Gap operates globally and should save the company about $275 million a year before taxes.